The clean-looking deal with a 22% problem.
How a buy-side Quality of Earnings kept a searcher from overpaying, without killing the deal.
Illustrative sample. Built on a fictional composite (Hoosier Supply Co.) to show the format and the kind of read we deliver. Real, named, client-approved case studies replace this as engagements close. We never manufacture proof.
Reported to adjusted EBITDA, all documented
Revenue in a single customer, undisclosed pre-review
From complete data to the findings readout
The situation
A self-funded searcher was under LOI on a distribution business doing about $10.4M in revenue. The broker's book showed roughly $1.1M in adjusted EBITDA and read clean. With an SBA loan and a personal guarantee on the line, the buyer wanted to know the number was real before wiring the deposit.
What we did
A full buy-side QoE: we tied reported revenue to the cash in the bank (proof of cash), tested every add-back against source documents, built the working-capital peg, and ran the customer and margin analysis. A management interview filled in the story behind the numbers.
What we found
The earnings held up. The 22% customer was the finding that changed the deal.
A self-funded searcher under LOI, SBA loan and a personal guarantee on the line. The book read clean. Reported EBITDA normalized up 83%, and every add-back had a document behind it. The risk was not in the earnings.
The earnings held up. Reported EBITDA of $610K normalized to about $1,115K, up 83%, and every add-back had a document behind it, owner compensation to market, a one-time legal matter, related-party rent at above-market terms. We rejected a $35K "rebrand" the seller wanted to add back, because it was a real, recurring cost of running the business. That rejection is the point: the rest of the schedule holds precisely because we did not stretch.
The catch surfaced in the concentration work: the single largest customer was 22% of revenue, and the top five were roughly 48%, a fact the broker's summary did not lead with. If that one account left after close, the buyer would have owned a materially different business than the one on the page.
The outcome
The buyer did not walk, and did not overpay. Armed with the finding, they restructured: part of the price moved into an earnout tied to retention of the top accounts, the working-capital peg was set so they were not short of cash on day one, and the concentration risk was addressed in the reps and escrow. The deal closed with both sides seeing the same, honest picture. That is what a QoE is for: not to kill the deal, to make sure you are buying what you think you are buying.